Palm oil has often emerged as a topic of heated debate among many groups of people. One issue frequently raised is the impact of palm oil industry, especially the allegation that oil palm plantations have worsened economic inequality, particularly between rural and urban areas. However, recent studies have proven otherwise: Oil palm plantations have driven rural development and narrowed the economic gap.
The oil palm plantations have been developed in remote, low-income, and economically disadvantaged areas. However, along the growth of palm oil centers, the local economies have been also accelerating. Production, distribution, services, and even consumption activities were pushed to grow, creating a larger “economic pie” for the surrounding communities.
Areas that were previously classified as economically degraded have transformed into more developed and prosperous ones.
Oil palm plantations have also proven to be a pioneering sector, driving many other economic sectors in rural areas. The presence of new markets, the growth of micro, small and medium enterprises (MSMEs), improved local transportation, and the increase of job opportunities have propelled many villages into new centers of economic growth.
The issue of inequality remains debated, but data shows a positive trend.
The debate surrounding economic inequality caused by oil palm is divided into two levels:
- Inter-regional inequality – between provinces/regencies with the oil palm centers and those without.
- Inequality at the village level – between residents who make a living from oil palm commodities and those who are not directly involved.
Nevertheless, international and national studies show a consistent pattern: oil palm plantations tend to reduce, not increase, the economic inequality.
Research by Gatto et al. (2017) shows that the growth of the palm oil sector produces a widening multiplier effect, benefiting not only farmers and plantation workers, but also non-plantation workers in the service, trade, and transportation sectors.
Economic impact expands to non-palm oil-centres
Apparently, the palm oil industry development has not only resulted in the increase of income in the production areas. Such positive impacts were also expanded to non-central areas through:
- indirect effects (supply of consumer goods),
- induced effects (increased purchasing power and consumption).
Syahza et al. (2019; 2021) emphasized that the development of oil palm plantations reduces inequality between social groups and narrows economic disparities among districts and cities.
Creating a New Middle Class from Villages
The rural transformation caused by oil palm has triggered the emergence of middle-income groups in areas once regarded as poor ones. This increase in income simultaneously narrows the gap between:
- rural and urban communities,
- traditional and modern sectors.
In the long term, this phenomenon is considered strong evidence that oil palm plantations are not only a superior commodity, but also an agent of inclusive development in rural areas of Indonesia. Certainly, the palm oil is a solution, not the cause of inequality problem. Based on various research findings, the development of oil palm plantations has proven to play a significant role in:
- increasing community income,
- generating village economic growth,
- narrowing regional disparities,
- creating a rural middle class.
Alamsyah, Z., et al. (2020). Oil palm expansion, income distribution, and regional development. Syahza, A., et al. (2019; 2021). Palm oil plantations and economic equity in rural Indonesia. Kementerian Pertanian RI. Statistik Perkebunan Indonesia – Kelapa Sawit. BPS Indonesia. Indikator Ketimpangan dan Kesejahteraan Desa-Kota.
